Brilliant analysis. I think we should differentiate between returns on investment that are monetized (and can easily leverage private capital) and those that are non-monetized (and are socially important but may not readily participate in the capital stack). When we use the word ‘investment’ for both, it may blur its meaning. Notwithstanding, this is an outstanding analysis of how spending can contribute to inclusive growth. My 2c at singerp.substack.com (“The future of global health is innovation”). Thank you Patricio!
On the second point of your comment, about leveraging private sector investors, the recent experience with Operation Warp Speed (OWS) in the United States deserves recognition as an international example of effective public-private collaboration. The rapid development, production, and global deployment of mRNA and other COVID-19 vaccines—an extraordinary achievement that helped bring the pandemic under control, save millions of lives, and accelerate the reopening of economies—stands as a landmark in public health history.
It powerfully illustrates that government financing and coordination are essential for advancing scientific knowledge and innovation as global public goods, particularly when market forces alone are insufficient or unable to manage systemic risks. Decades of public investment in biomedical research laid the foundation for this success, and the innovative use of government purchasing commitments and risk mitigation tools enabled private sector actors to respond with unprecedented speed.
OWS offers a replicable model for addressing other complex health and social challenges—such as antimicrobial resistance, neglected diseases, or future pandemics—by aligning public goals with private capabilities. Notably, this initiative was launched under the first Trump administration, underscoring that effective, outcome-focused public investment can transcend political divisions and provide a valuable precedent for future policymaking.
Many thanks Peter. The financial versus economic benefits distinction that you make is right on the mark. However, we need to be mindful that a pure financial analysis is not sufficient to appraise a specific healthcare investment project funding support. It needs to be combined with an economic analysis, taking into consideration the benefits of the investment for the society as a whole. As clearly outlined in a brief by the European Investment Bank notes, a strictly financial appraisal of a healthcare project often favors those designed to maximize profits—typically by targeting specific sociodemographic groups or exploiting particular provisions in insurance schemes. This approach risks marginalizing less “profitable” patients or treatments not covered by private insurance, shifting the burden of care to the public sector—a perverse form of public subsidy. This observation highlights a well-documented reality: the health sector is a domain where markets frequently fail to allocate resources efficiently. As such, healthcare providers cannot—and should not—be expected to operate under a constant mandate of profitability. Healthcare investment projects typically generate moderate financial benefits, but significant ones in terms of lives saved, new infections or diseases avoided, quality-adjusted life-years (QALYs) gained, loss of working days avoided—the social or economic returns on investment. Those economic benefits have an intrinsic monetary value. The EIB brief can be accessed at: Tunde Szabo, European Investment Bank
That’s a good way to put it. What I wonder is without monetizing the economic benefits, how can a country pay off a loan? If we could close the gap between financial and economic returns, we might be able to truly leverage private sector investment.
During my pre-retirement career at the World Bank Group, our health teams were responsible for conducting comprehensive technical, institutional, fiduciary, financial, and economic assessments, as well as evaluating the risks associated with proposed investment projects. These assessments formed the basis for project appraisals presented to Management and the Board for funding approval, and subsequently for the signing of legally binding agreements between the Bank and client governments. These agreements outlined the terms for the use of funds, reporting requirements, and the financial conditions, including repayment arrangements.
As part of the financial and economic feasibility analysis, two key indicators tend to be estimated ex ante: the Financial Return on Investment (ROI) and the Economic Rate of Return (ERR). Though related, these are conceptually distinct measures used to evaluate the efficiency and profitability of a project.
Financial ROI focuses on profitability from the investor’s standpoint—typically reflecting direct financial costs and returns, assessed at market prices. It is especially relevant when considering a project’s viability for private or commercial investment.
Economic Rate of Return (ERR), by contrast, evaluates a project’s overall efficiency from a societal perspective. It incorporates both direct and indirect costs and benefits, accounting for externalities, shadow pricing, and broader developmental impacts. ERR is typically calculated using cost-benefit or cost-effectiveness analysis and expressed as a percentage. It is especially important for public sector entities to determine the economic justification for allocating public resources.
When a project closes, an Implementation Completion Report is prepared, including an ex-post financial and economic assessment, and the sustainability of the flow of benefits over time.
…” partnerships focused on institutional reform <creation>, systems strengthening, and national capacity development. These are the building blocks of resilient economies and inclusive societies that deliver real and lasting benefits to all.”. Reference, the 80 year plus social security history , Costa Rica.
Indeed, Costa Rica’s historic decision to abolish its army following the 1948 revolution led by José María Figueres, known as Don Pepe, stands as a powerful example of the classic macroeconomic trade-off: guns versus butter. This political choice—endorsed and sustained by broad public support—freed up fiscal space that enabled long-term, sustainable investment in human development.
Central to this strategy was the establishment of the Costa Rican Social Security System (Caja Costarricense de Seguro Social), financed through a tripartite contributory scheme involving the government, employers, and workers. Over the past 75 years, the Caja has been generally well-managed, achieving universal coverage for healthcare, pensions, and disability services.
This decision also laid the groundwork for major public-private investments in education, resulting in Costa Rica now having one of the most educated populations in the Americas.
The social return of this investment is positive: Costa Rica boasts a life expectancy of around 81 years and an infant mortality rate of about 4 per 1,000 live births—both comparable to OECD averages and among the best in Latin America. In education, while tertiary attainment among adults is lower than the OECD average (25% vs. ~40%), the country has made strong gains in early childhood enrollment and secondary education completion, especially among younger adults.
Costa Rica’s high levels of health and education have been pivotal in attracting foreign investment and generating well-paying jobs, especially in advanced sectors like medical devices, pharmaceuticals, IT services, and high-value manufacturing. A healthy and well-educated workforce has made the country an attractive destination for multinational companies seeking stable environments with skilled human capital, strong public institutions, and relatively low business risk.
Ultimately, Costa Rica’s experience underscores a fundamental question as advised by the late Prof. Uwe Reinhardt, that should guide policymaking and budgetary decisions everywhere: “What kind of society do we want to build?”
Brilliant analysis. I think we should differentiate between returns on investment that are monetized (and can easily leverage private capital) and those that are non-monetized (and are socially important but may not readily participate in the capital stack). When we use the word ‘investment’ for both, it may blur its meaning. Notwithstanding, this is an outstanding analysis of how spending can contribute to inclusive growth. My 2c at singerp.substack.com (“The future of global health is innovation”). Thank you Patricio!
On the second point of your comment, about leveraging private sector investors, the recent experience with Operation Warp Speed (OWS) in the United States deserves recognition as an international example of effective public-private collaboration. The rapid development, production, and global deployment of mRNA and other COVID-19 vaccines—an extraordinary achievement that helped bring the pandemic under control, save millions of lives, and accelerate the reopening of economies—stands as a landmark in public health history.
It powerfully illustrates that government financing and coordination are essential for advancing scientific knowledge and innovation as global public goods, particularly when market forces alone are insufficient or unable to manage systemic risks. Decades of public investment in biomedical research laid the foundation for this success, and the innovative use of government purchasing commitments and risk mitigation tools enabled private sector actors to respond with unprecedented speed.
OWS offers a replicable model for addressing other complex health and social challenges—such as antimicrobial resistance, neglected diseases, or future pandemics—by aligning public goals with private capabilities. Notably, this initiative was launched under the first Trump administration, underscoring that effective, outcome-focused public investment can transcend political divisions and provide a valuable precedent for future policymaking.
For additional details on this experience, please see my post: "COVID-19 Vaccines: The Value of Investing in Public Goods and Public-Private Partnerships" at https://pmarquez.substack.com/p/covid-19-vaccines-the-value-of-investing
Many thanks Peter. The financial versus economic benefits distinction that you make is right on the mark. However, we need to be mindful that a pure financial analysis is not sufficient to appraise a specific healthcare investment project funding support. It needs to be combined with an economic analysis, taking into consideration the benefits of the investment for the society as a whole. As clearly outlined in a brief by the European Investment Bank notes, a strictly financial appraisal of a healthcare project often favors those designed to maximize profits—typically by targeting specific sociodemographic groups or exploiting particular provisions in insurance schemes. This approach risks marginalizing less “profitable” patients or treatments not covered by private insurance, shifting the burden of care to the public sector—a perverse form of public subsidy. This observation highlights a well-documented reality: the health sector is a domain where markets frequently fail to allocate resources efficiently. As such, healthcare providers cannot—and should not—be expected to operate under a constant mandate of profitability. Healthcare investment projects typically generate moderate financial benefits, but significant ones in terms of lives saved, new infections or diseases avoided, quality-adjusted life-years (QALYs) gained, loss of working days avoided—the social or economic returns on investment. Those economic benefits have an intrinsic monetary value. The EIB brief can be accessed at: Tunde Szabo, European Investment Bank
https://share.google/uFKYNaLNZTsFAEeSk. Your perspectives on this topic are timely and much needed nowadays at country and international levels.
That’s a good way to put it. What I wonder is without monetizing the economic benefits, how can a country pay off a loan? If we could close the gap between financial and economic returns, we might be able to truly leverage private sector investment.
During my pre-retirement career at the World Bank Group, our health teams were responsible for conducting comprehensive technical, institutional, fiduciary, financial, and economic assessments, as well as evaluating the risks associated with proposed investment projects. These assessments formed the basis for project appraisals presented to Management and the Board for funding approval, and subsequently for the signing of legally binding agreements between the Bank and client governments. These agreements outlined the terms for the use of funds, reporting requirements, and the financial conditions, including repayment arrangements.
As part of the financial and economic feasibility analysis, two key indicators tend to be estimated ex ante: the Financial Return on Investment (ROI) and the Economic Rate of Return (ERR). Though related, these are conceptually distinct measures used to evaluate the efficiency and profitability of a project.
Financial ROI focuses on profitability from the investor’s standpoint—typically reflecting direct financial costs and returns, assessed at market prices. It is especially relevant when considering a project’s viability for private or commercial investment.
Economic Rate of Return (ERR), by contrast, evaluates a project’s overall efficiency from a societal perspective. It incorporates both direct and indirect costs and benefits, accounting for externalities, shadow pricing, and broader developmental impacts. ERR is typically calculated using cost-benefit or cost-effectiveness analysis and expressed as a percentage. It is especially important for public sector entities to determine the economic justification for allocating public resources.
When a project closes, an Implementation Completion Report is prepared, including an ex-post financial and economic assessment, and the sustainability of the flow of benefits over time.
This dual approach to financial and economic assessment ensures that projects not only make fiscal sense for the Bank and the borrower, but also contributed positively to broader development outcomes and value for society. See: World Bank Guidelines for calculating financial and economic rates of return for DFC projects: https://documents.worldbank.org/pt/publication/documents-reports/documentdetail/567991468782148724/guidelines-for-calculating-financial-and-economic-rates-of-return-for-dfc-projects#:~:text=The%20approach%20concentrates%20on%20capital,when%20prices%20are%20adjusted...
Perfect
…” partnerships focused on institutional reform <creation>, systems strengthening, and national capacity development. These are the building blocks of resilient economies and inclusive societies that deliver real and lasting benefits to all.”. Reference, the 80 year plus social security history , Costa Rica.
Indeed, Costa Rica’s historic decision to abolish its army following the 1948 revolution led by José María Figueres, known as Don Pepe, stands as a powerful example of the classic macroeconomic trade-off: guns versus butter. This political choice—endorsed and sustained by broad public support—freed up fiscal space that enabled long-term, sustainable investment in human development.
Central to this strategy was the establishment of the Costa Rican Social Security System (Caja Costarricense de Seguro Social), financed through a tripartite contributory scheme involving the government, employers, and workers. Over the past 75 years, the Caja has been generally well-managed, achieving universal coverage for healthcare, pensions, and disability services.
This decision also laid the groundwork for major public-private investments in education, resulting in Costa Rica now having one of the most educated populations in the Americas.
The social return of this investment is positive: Costa Rica boasts a life expectancy of around 81 years and an infant mortality rate of about 4 per 1,000 live births—both comparable to OECD averages and among the best in Latin America. In education, while tertiary attainment among adults is lower than the OECD average (25% vs. ~40%), the country has made strong gains in early childhood enrollment and secondary education completion, especially among younger adults.
Costa Rica’s high levels of health and education have been pivotal in attracting foreign investment and generating well-paying jobs, especially in advanced sectors like medical devices, pharmaceuticals, IT services, and high-value manufacturing. A healthy and well-educated workforce has made the country an attractive destination for multinational companies seeking stable environments with skilled human capital, strong public institutions, and relatively low business risk.
Ultimately, Costa Rica’s experience underscores a fundamental question as advised by the late Prof. Uwe Reinhardt, that should guide policymaking and budgetary decisions everywhere: “What kind of society do we want to build?”